Deadline Approaches for Comments on Safe Student Banking

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The Safe Student Account Scorecard was proposed by the Consumer Financial Protection Bureau (CFPB) in an attempt to rate the performance of banks that market financial products to students. The goal behind the report card-style tool is to give colleges and universities insight into how those banks operate in terms of customer service and business transparency.

The scorecard will track such things as the fees, interest rates, terms, and conditions offered to students on products like credit cards and prepaid plastic. The CFPB is also interested in monitoring relationships between banks that target students and the educational institutions that permit that kind of financial advertising and promotional activity on campus.

The Safe Student Account Scorecard

The CFPB recently issued a request for information and comments from financial institutions, providers of financial aid disbursement, student and parent consumers, student associations and others, with a deadline of March 16th, 2015. Some of the area of which information is being sought includes:

How can institutions of higher education and students benefit from soliciting information on the features and cost of financial products marketed through a partnership with a financial institution?

How can the draft scorecard based on the FDIC Model Safe Accounts template be adapted to meet the needs of this specific market and to other types of products that institutions of higher education seek to offer to their students?

What factors would institutions of higher education consider when determining whether or not to include additional information on product features and cost as part of a Request for Proposal?

For which student financial products would a Safe Student Account Scorecard be most useful to institutions of higher education?

The idea is that colleges can use the scorecard to find out specific details about financial institutions before letting them offer their products and services to students.

Main Scoring Categories

Although still in the planning stages, the scorecard is geared toward financial products like credit cards, debit and prepaid plastic as well as bank accounts. The scores are tabulated across a few particular categories on which banks will be rated.

One is credit card and bank account features like fees and charges, and the questionnaire asks whether monthly maintenance fees may be waived under certain circumstances. The scorecard will also rate the transparency of the financial institution’s marketing tactics, and whether any contracts with the school are also revealed.

The CFPB additionally wants banks to report each year on what kinds of fees students are typically paying and what the average cost of those fees are. Holding true to their reputation, the CFPB ultimately wants as much transparency as possible and will monitor these partnerships.

What Prompted the Scorecard Initiative?

If banks are already highly regulated, questions may arise as to why the CFPB want to issue report cards on their behavior and share that information with colleges.

The catalyst for creating the scorecard tool may be traced back to around 2008-2009, when questionable relationships between universities and banks made media headlines. It was unveiled how banks had entered into legal contracts with universities – including state-funded ones that are supported by taxpayers – to pay those colleges for access to student data like names and addresses.That raised concerns on behalf of parents paying tuition as well as students whose business was being solicited by banks and credit card issuers.

It was discovered that big banks had a rather cozy and secretive contractual relationships with lots of major universities. In some cases those educational institutions were earning what amounted to hefty sales commissions or finder’s fees, paid by the banks, in exchange for helping those banks promote their products and sign up students for credit cards.

Pushback from Big Banks

Members of the Consumer Bankers Association, a banking industry trade group, responded to concerns addressed in the CFPB’s request for information with a predictably defensive statement.

The organization expressed its view that many of the topics of concern brought up by the CFPB were based on outdated research that emphasized the wrongdoing of one particular institution that was not actually a depository bank.

The bankers group also reminded the CFPB that traditional banks are already subject to strict federal regulations covering rules about transparency and disclosure.

Coming Soon to a Campus Near You

Needless to say, these kinds of financial arrangements – and the fact that they were kept undisclosed – upset many consumers and angered some policy makers in Washington who called for greater transparency and reform.

Lots of prestigious universities were also embarrassed, and many of them had to win back the trust of their students and supporters. They made promises to be more transparent and careful, so the CFPB believes that colleges will welcome the scorecard program and use it to help them screen out banks with which to partner on behalf of students.

The scorecard being proposed is not yet in use, but the CFPB is gathering feedback and comments through March 16, 2015. After that it is expected to undergo final drafts, and the scorecard may be completed and ready to deploy later this year.

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